Which of the following statements regarding exogenous and endogenous variables is correct?
A)The set of exogenous variables in any economic model should take into account the rich detail of the world and so should be limitless.
B)Endogenous variables will always be determined within the model.
C)Exogenous variables change as a result of changes in endogenous variables.
D)The only variables that are relevant to the market equilibrium are the endogenous variables, as they are determined within the model.

Question

Quizplus · Accepted Answer

Endogenous variables are determined within the model, while exogenous variables are determined outside the model and influence endogenous variables. Option A is incorrect as including too many exogenous variables can make a model too complex and difficult to analyze. Option C is incorrect as it describes a feedback loop, where changes in endogenous variables can influence exogenous variables, but not necessarily vice versa. Option D is incorrect as exogenous variables can also have an impact on market equilibrium. Endogenous variables are the variables that are determined within the model, whereas exogenous variables are outside the model and their values are taken as given. Option A is incorrect because while exogenous variables should take into account the relevant factors, they cannot be limitless. Option C is incorrect because it is the other way around: changes in exogenous variables can cause changes in endogenous variables. Option D is incorrect because both endogenous and exogenous variables are relevant to the market equilibrium.

Which of the Following Statements Regarding Exogenous and Endogenous Variables